Let us understand Turn Around of Indian Railways .

The 540-km Sonnagar-Dankuni section of eastern dedicated rail freight corridor — to be implemented on public-private-partnership (PPP) basis — will be undertaken in two phases.

This is because the total project cost is estimated to be about Rs 15,000 crore, including the finance costs, which makes the project size on the higher side for the private sector. The two phases are Dankuni-Gomoh (276 km) and Gomoh-Sonnagar (264 km).

The stretch, which is an extension of the Eastern freight corridor, is expected to primarily carry coal and iron ore traffic in the Dhanbad, Jharia and Raniganj region.

This rail link will be about 165 km shorter than the existing feeder rail track of Indian Railways that serves the area.

“In effect, this will reduce the time to load traffic from the region, save fuel and staff cost. It will also have a higher loading capacity as it will be part of the dedicated freight corridor,” explained V.K. Madhukar, Group General Manager, PPP, Dedicated Freight Corridor Corporation India Ltd (DFCCIL).

The Railway Ministry had preliminary discussions with potential investors such as Larsen& Toubro (L&T), GMR and Tata Power amongst others.

The Prime Minister’s Office has recently asked the Railway Ministry to provide milestones with timelines for Sonnagar-Dankuni Project and adhere to them.

The eastern and western freight corridors are expected to entail a cost of about Rs 95,000 crore. Barring the Sonnagar-Dankuni stretch, the entire project is being undertaken on engineering procurement contract basis with funding from Japan International Cooperation Agency (JICA) and World Bank.

COST BREAK-UP

For the Dhankuni-Gomoh section, the project cost is estimated at Rs 8,066 crore, including a construction cost of Rs 5,811 crore. The construction cost of phase I and II combined has been estimated at Rs 10,022 crore, as on August 2011.

DFCCIL has appointed SBI Capital Markets Ltd as its financial advisor to undertake financial modelling for Sonnagar-Dankuni EDFC project through PPP basis. The construction of the projects are targeted to take off by start of financial year 2014 (Phase-I) and 2015 (Phase-II).

Meanwhile, there are a slew of preparatory works that have to be undertaken. “DFCCIL will be appointing financial, legal and technical consultants to work out the detailed contours of the project,” Madhukar said.

Pre-requisites, such as land acquisition, technical report and project cost, manual of technical standards and specifications, financial modelling, traffic projections, concession agreement, RFQ (Request for Qualification) and RFP (Request for Proposal) are required to be finalised.

BROAD PPP MODEL

While the exact contours of the PPP model for this project is yet to be finalised, DFCCIL has provided the following broad framework of PPP model.

The concessionaire, to be selected through competitive bidding, will construct the line and maintain the infrastructure — civil engineering, signalling, over-head electrical lines and station buildings for a period of approximately 25 years. The concession period shall not be shorter than 20 years or longer than 30 years

“In case 80 per cent of the total traffic during the concession period is not reached on the target date (20 years), for every four per cent shortfall, the concession period shall be extended by one year and the reverse principle shall apply if the actual traffic exceeds the threshold traffic,” said Madhukar.

The revenue of the concessionaire will be in the form of 50 per cent of the traffic revenue earned by using that line. Indian Railways has a system of apportioning earnings to particular stretches used to carry traffic.

To develop, finance, build and operate the line, the interested concessionaires have to bid on the basis of offering a premium offered to the Government or demand a grant from the Government.

LAST AND FIRST MILE CONNECTIVITY

Incidentally, recently, Indian Railways has received a Cabinet approval for a broad framework of five models to undertake last and first mile rail connectivity on a PPP basis.

However, it is not yet clear about the extent to which the Sonnagar-Dankuni project will be similar or different from the broad framework that has been approved. At a basic level, this PPP project is a part of the DFCCIL, which in itself is a special purpose vehicle of the Railways.

DFCCIL is required to undertake planning, construction, operation and maintenance of dedicated freight corridors. DFCCIL itself will get revenues in the form of track access charges from the Indian Railways, with incentives for better than agreed upon performance parameters.

The entire Western Dedicated Freight Corridor — of 1,499 km from Jawaharlal Nehru Port in Mumbai to Rewari-Dadri near New Delhi — is being implemented with loan from JICA, Government of Japan. Out of 1,839 km Eastern Dedicated Freight Corridor from Ludhiana in Punjab to Dankuni near Kolkata, World Bank funding has been agreed for 1,183 km from Ludhiana to Mughalsarai.